Rail 430: Taxpayer will pick up tab for much of Chiltern’s investment

Claims that the £371m new investment in the much-trumpeted 20-year Chiltern franchise will largely be funded by the private sector are a little economical with the truth, claims CHRISTIAN WOLMAR. In fact, public subsidy will still make up a significant slice of the investment.

Shout it from the rooftops: the first new franchise deal has been signed. Well, almost. In the next couple of weeks, the ink will finally be drying on the contract for M40 trains, the John Laing offshoot, to run Chiltern Railways for another 20 years. This is a mere 18 months after the ‘heads of agreement’ were signed, so it is worth savouring the moment.

This ‘excellent’ news was given to the assembled media at a press conference on February 18 in the hotel opposite Marylebone station, The Landmark, which, of course, was once the headquarters of British Railways. This was Richard Bowker’s first such announcement as head of the Strategic Rail Authority and it was clearly a chastening experience for him.

Let’s just rewind to 1996, the first round of franchising run by the old OPRAF headed at the time by Roger Salmon, a merchant banker who had never previously worked in the rail industry. (Incidentally, they were all let within just over a year.) When the three franchise deals were announced, it appeared that the figures of payment of subsidy would remain ‘commercially confidential’. Along with other transport correspondents – I was on The Independent at the time – the press made a fuss, arguing that such figures should be a matter of public record. The matter went right up to Mr Salmon who clearly agreed, and thereafter detailed subsidy figures were provided with every announcement.

The same initial reluctance in providing figures arose a couple of years ago when MTL went belly-up and Arriva took over its two franchises. It took considerable effort to discover that Arriva was receiving £22m a year extra to run the old Northern Spirit franchise which it renamed Arriva Trains Northern. And even then, it was only much later that anyone discovered that the deal had been done on a cost-plus basis – in other words, all risk had been taken out of the contract.

So there was a strong sense of deja vu when, ploughing through the bumf handed out at the press conference, no figures on subsidy were available. Instead, there was lots of broad-brush stuff about how the franchise deal would lever-in £371m of investment over the 20-year period, though precious little detail on how that figure could be broken down. My question to Mr Bowker on subsidy was dismissed with a promise that the figures would be available at a later stage.

Other questions were peremptorily dealt with by Mr Bowker who seemed in a hurry to get to the photocall and allowed barely ten minutes for questions. No details of the deal were forthcoming and instead we were left with the sort of promises that used to be made by the Tories when they announced franchise winners: “a good day for passengers and a good day for the taxpayer” was the usual nonsense. It was noticeable that no minister was on show at the Chiltern fiesta.

When I asked how much of the £371m – don’t you just love the precision of the ‘£1m’ which, of course, is entirely fatuous – was public money, the question was dismissed by Adrian Shooter, the head of Chiltern Trains, with a vague “I can assure you most of the money is coming from the private sector”.

As for the question on why Railtrack was charging a staggering £60m to reinstate double track on a mere nine miles of plain line between Bicester North and Aynho junction, Mr Shooter merely said: “You will have to ask Railtrack that.” Except that the man from Railtrack failed to make an appearance despite his nameplate appearing on the top table.

To his credit, Mr Bowker admitted later “this has not been one of my best days”, and clearly will make sure in future that not only is all the information available but that there is an opportunity for the type of searching questions which the media are fully entitled to ask.

The franchise, incidentally, is 20 years only on the basis that a list of ‘contracted improvements’ – which include doubling of the track mentioned above, platform lengthening at 13 stations, extending the service to Kidderminster, new stock and revamping Birmingham Moor Street – go ahead as well as a series of ‘planned developments’ and ‘future proposals’. Otherwise, if no future proposals are committed to by the end of 2005, the franchise will revert to 12 years and to ten if the Bicester North-High Wycombe and London area infrastructure upgrades do not take place.

Actually, Chiltern is the legacy of Mr Bowker’s predecessor, Sir Alastair Morton, to the railways. 20-year deals levering-in lots of investment were his idea, but is it a good deal? And if so, for whom? It is only possible to work that out with the subsidy figures which were eventually provided by the SRA press office. They make interesting reading. On the basis of a 20-year deal, Chiltern will receive, at today’s prices (the real amounts actually rise with inflation) £17.4m this year and £22.4m next year which then reduces steadily to £17.4m in 2007. Then, presumably because most of the investment has been made by then, there is a relatively sharp reduction annually so by 2014 Chiltern will pay a premium which will rise to £16.5m in 2021.

This represents a very substantial rise in subsidy to Chiltern as, under the current arrangements, the company would have got around £5.5m this year and £3.8m in 2002/03. (Comparisons are made slightly more complicated by the fact that the SRA changed the subsidy dates from financial years to calendar years.)

Leaving aside these premium payments for the moment – which I reckon are largely fantasy anyway, just as Virgin will never pay the premiums it is supposed to for the latter parts of its CrossCountry and West Coast franchises – in the first six years of the new deal, Chiltern will receive nearly £100m in subsidy and by 2014 the company will get £133m. That represents a substantial chunk of the £371m, which makes Mr Shooter’s statement a little economical with the vérité.

Furthermore, of the £371m, £131m will be on new trains which are funded by rolling stock companies and are therefore not much to do with Chiltern. As I stressed in my book, Broken Rails, the rolling stock companies were the most successful aspect of the break-up of BR, but such private leasing deals would have been perfectly possible in the public sector and should not, therefore, be used as a justification for the privatisation of the railway.

The answer to the question on the deal is that it offers lots of benefits for Chiltern users – though not those who want to commute from outer London, who have largely been ignored – but at a substantial cost to the taxpayer. And Railtrack and its contractors have been allowed, again, to profit from their monopoly position by charging exorbitant amounts for their services. Next time, let’s hope Mr Bowker and his team turn up with all the relevant facts straight away. You see, Richard, it just makes people suspicious when you don’t.

Bowker hones down his thinking

Mr Bowker has had a busy time recently, as he also delivered the Sir Robert Reid lecture. His predecessor, Sir Alastair Morton, used to go in for this sort of thing all the time. My local stationery store has grown rich on selling fax paper as Sir Alastair’s output so frequently poured forth from my machine at astonishing length.

Sir Alastair used to paint broad pictures but was desperately short on the detail and on practicalities like not infuriating the Treasury and the Department of Transport. Mr Bowker shows signs of being much more practical in his speeches and, hopefully, he will not be so hard-wearing on my fax machine.

His lecture was interesting because it is clear that he is focusing much more on the nitty-gritty of how to make the SRA effective and how to deliver small incremental improvements to the railway which, added up, could be significant. In RAIL 429 my fellow columnist Industry Insider rightly highlighted the large amounts of money which are being channelled towards small investment schemes.

One of the themes of Mr Bowker’s lecture – which was entitled ‘Britain’s railway: time for a new radicalism’ – was his attempt to identify how the growth target of 40-50% in passengers and 80% in freight over the next decade can be achieved. Let me first say that I have a problem with this concept, which is ‘why?’ Why, indeed, do we want more people on the railways? Transport should never be a desirable end in itself since few journeys are undertaken for the sheer pleasure of travel. And why 50% and 80% rather than 60% and 10% or whatever? Mr Bowker avoids exploring this issue, though perhaps he should do so at another time, but instead identifies quite clearly that the old Passenger Service Requirements which defined the franchise structure are not designed to promote growth. Indeed, he argues, PSRs have on occasion “become an obstruction to expansion of train services”.

So, instead, the SRA will be developing a ‘capacity utilisation strategy’ which, in English, means “how to make the best use of the railway”. Mr Bowker also pointed out in his speech that in order to give the SRA more focus, job advertisements have already been placed for a managing director for strategic planning and one for ‘transformation’. Again, English is a bit of a problem here, but what this means is that one senior bod will look at ‘blue skies’ enhancements for the railway and the other will “take the lead in doing deals.”

The other idea in the speech is the development of the idea of ‘virtual boards’ to run bits of the railway. The first one, for Great Western, met in January and included people from all the train and freight operators, the SRA, the maintenance contractors and the Regulator. The idea is to offer solutions to practical problems which emerge on a particular route. I have no problem with that, but as Mr Bowker said in his speech: “Of course there are contractual issues and the virtual board is not the appropriate place to resolve them.”

Sure, the idea of a virtual board represents progress, but it does not address the structural issues which undermine progress on the railway. Mr Bowker refuses to address those, arguing that the railway’s difficulties are down to management rather than structure. And that, I’m afraid, is where we part company.

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